Cost-to-Serve: gaining profitability insights
To pinpoint the full profitability of products or customers across the supply chain, net margin analysis, also known as cost to serve (CTS), can help. CTS is a modeling technique that offers insight into every cost an organization incurs in the process of delivering a product or service to a customer.
Unlike traditional accounting methods, which calculate gross margin by subtracting the cost of goods sold from the net sales value, CTS unveils the cost of every customer-driven action – from order receipt and product delivery all the way to the customer’s shelf. Introducing net margin analysis into your accounting and control processes enables you to provide a full P&L down to the net margin by business dimension. As a result, it’s the ultimate data source for advanced profitability analytics.
Use cost to serve to:
- draft an action plan to turn unprofitable products or customers into profitable ones;
- modify manufacturing or logistics processes to optimize efficiency;
- adapt commercial strategies by modifying pricing and discounting, renegotiating contracts, restructuring distribution channels or abandoning specific products, services or customers.
CTS analysis is not a one-off exercise. As businesses today are changing at lightning speed, it is key for you to continuously review the outcomes of the actions taken and reassess and adjust them wherever needed.
“CTS unveils the cost of every customer-driven action – all the way from order receipt and product delivery to the customer’s shelf.”
